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Between 2006 and 2020, the world is expected to reach a peak in oil production where world demand for oil resources will be greater than the world's available oil supplies. Learn about oil and natural gas depletion and what that means for the global economy and our way of life in the United States.

Wednesday, April 19, 2006

Ahmadinejad: Oil Price Is Lower Than Value

TEHRAN, Iran - Wading into oil politics for the first time, Iran's hard-line president said Wednesday that crude oil prices — now at record levels — still are below their true value.

In statements likely to rattle world oil markets, President Mahmoud Ahmadinejad also said developed countries, not producing countries like Iran, are benefiting the most from the current high prices.

"The global oil price has not reached its real value yet. The products derived from crude oil are sold at prices dozens of times higher than those charged by oil-producing countries," state-run Tehran radio quoted Ahmadinejad as saying.

"The developed nations are the biggest beneficiary of the added value of oil products," he said.

"The products derived from crude oil cost over 10 times the price of oil sold by producing states. Developed and powerful countries benefit more from its value-added than any party," Ahmadinejad said.

Oil prices should be determined on the basis of market supply and demand, the Iranian leader said.

"Oil is the major asset of nations possessing it. Its price should not be lowered on the pretext that it will prove harmful to developing states, thus permitting the world powers to benefit the most from it," he said.

George Orwel, an analyst at the New York-based Petroleum Intelligence Weekly said he thought Ahmadinejad was playing the oil card to resist pressure over Iran's nuclear program."They are using the oil as a political football. Every time there's an issue with Iran, the oil market freaks out," he said in a telephone interview.

If the United States were to attack Iran, Tehran might try to cripple the world economy by putting a stranglehold on the oil that moves through the Strait of Hormuz — a narrow, strategically important waterway running to Iran's south.

While discounting Ahmadinejad's seriousness in his Wednesday comments about the value of oil, Orwel conceded the oil industry could not do without the 2.5 million barrels that Iran exports daily.

"Ahmadinejad is trying to show his muscle so that the Bush administration can realize the consequences on the oil market of further confrontation with Iran," Orwel said, adding that he fully expected Iran to threaten to cut off oil if the confrontation with the West continued.While Ahmadinejad did not say he would use oil as a weapon in his dispute with the West, Interior Minister Mostafa Pourmohammadi said last month the oil card was in play.

"If (they) politicize our nuclear case, we will use any means. We are rich in energy resources. We have control over the biggest and the most sensitive energy route of the world," he said, referring to the Straits of Hormuz.

In keeping with Iranian leaders' tendency of late to contradict themselves, Foreign Minister Manouchehr Mottaki later denied Iran would adopt such a policy.

Ahmadinejad urged oil-producing countries — within and outside the Organization of Petroleum Exporting Countries — to establish a fund to help alleviate the pressure resulting from high oil prices on Third World nations.

"What he's saying makes a lot of sense. Unfortunately, the source of the comment is going to send jitters in the market," Gheit said.

"The street value (of oil) is triple what OPEC is making," Gheit added, referring to the value of a barrel of gasoline versus the value of a barrel of oil.

Oil Jumps Above $72 to New High

I love how they stick the most important part at the end of the article! The problem of supply and demand it what peak oil is all about. The supply just isn't there and prices will continue to go up, up, up. Forecasts for supply increases are overly optimistic, and I think the markets are just starting to realize that oh-so-important fact.--------------

Oil prices jumped above $72 a barrel to yet another record Wednesday after a government report said supplies of crude made a surprise decline and gasoline stocks fell far more than expected

The Energy Department said in its weekly inventory report that supplies of gasoline fell 5.4 million barrels last week. Analysts had predicted a decline of 2.5 million barrels, according to Reuters.

Oil has been hitting record highs in recent sessions, unadjusted for inflation, on supply worries fed by fears of a confrontation with Iran, the world's fourth-biggest producer. But it's also within sight of inflation-adjusted highs of around $80 a barrel set in the late 1970s and early 1980s following the gas crisis and the Iranian revolution.

Gasoline supplies have been watched especially closely the last few weeks as the U.S. gears up for summer driving season.

In addition to soaring crude, growing demand and problems at refineries - including lingering effects from last season's hurricanes and a switch to less polluting gasoline - have contributed to rising prices at the pump.

Gas prices closely follow crude prices, which have jumped about 13 percent this year, mainly on political uncertainty or violence in Iran, Nigeria, Venezuela and Russia - all major producers. Oil prices soared 45 percent in 2005.

The International Monetary Fund said high oil prices could begin hurting world economic growth and called on the U.S., which uses a quarter of total world production, to raise taxes in a bid to reduce demand, Reuters reported.

Reuters also said OPEC ministers will meet next week informally to discuss prices, but said there is little the cartel, already pumping at near full capacity, can do to ease the situation.But politics is only part of the story with crude prices. Oil has been on a charge for the last few years, more than tripling in price since the start of 2002.

And fundamental supply and demand has also played a big part as discoveries of new, easily recoverable supplies have failed to keep pace with ever rising demand from the U.S. and developing countries like China and India.Full Article

Tuesday, April 11, 2006

George W. Bush and Peak Oil: Beyond Incompetence

Richard Heinberg is the auther of The Party's Over: Oil and The Fate of Industrial Societies (excellent primer for Peak Oil Newbies) and Powerdown: Options and Actions for a Post Carbon Institute. I've only included excerpts below from Heinberg's article, but I encourage you to read the whole thing -- it's pretty good. Loved the Bush/Cheney/Clinton/Gore criticism. It's becoming increasingly clear that our political leaders in both major parties are failing us and leading us in the wrong direction.------------

It is part of the job of leaders to foresee problems and either steer around them or prepare for them. A head of state is analogous to the captain of a ship, who is responsible not only for keeping his vessel on course but also for avoiding hazards such as storms and icebergs. Some problems are not foreseeable; others are. A ship’s captain who loses his vessel to a freak “perfect storm” may be blameless, but one who steers his passenger liner directly into a foggy ice field, having no sonar or radar, is worse than a fool: he is criminally negligent.

Peak Oil is foreseeable. The consequences are also foreseeable and are likely to be ruinous.

The Royal Swedish Academy of Sciences...describes the situation this way: In the last 10–15 years, two-thirds of the increases in reserves of conventional oil have been based on increased estimates of recovery from existing fields and only one-third on discovery of new fields. In this way, a balance has been achieved between growth in reserves and production. This can’t continue. 50% of the present oil production comes from giant fields and very few such fields have been found in recent years." The 100 or so giant and super-giant fields that are collectively responsible for about half of current world production were all discovered in the 1940s, ’50s, ’60s, and ’70s and most are now going into decline.

Ford Motor Company Executive Vice President Mark Fields, in his keynote address in October, 2005 at the Society of Automotive Engineers’ “Global Leadership Conference at the Greenbrier,” noted the seven most serious challenges to his industry, one of which was that “oil production is peaking. Volvo motor company has for several years acknowledged in its company literature that a global oil production peak is likely by 2015.7

On March 1, 2006 The New York Times published an editorial by Robert Semple, Associate Editor of the Editorial Page for the Times since 1998, in which he wrote, “The concept of peak oil has not been widely written about. But people are talking about it now. It deserves a careful look—largely because it is almost certainly correct.”

The Bush administration has been repeatedly warned.

First of all, agencies within the government clearly understand the problem, and therefore relevant information must be readily available to the chief executive if he wishes to have it.

In a 1999 speech Cheney pointed out: "By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional fifty million barrels a day." This is a fair statement of the depletion dilemma: 50 million barrels per day is almost five times the current output of Saudi Arabia.

...A paper prepared for the U.S. Army Corps of Engineers...includes the following tidbit: "The supply of oil will remain fairly stable in the very near term, but oil prices will steadily increase as world production approaches its peak. The doubling of oil prices in the past couple of years is not an anomaly, but a picture of the future. Peak oil is at hand..."

And then there is the 2005 Hirsch Report, “Peaking of World Oil Production: Impacts, Mitigation and Risk Management,” commissioned by the U.S. Department of Energy,

Then there is the following from the U.S. Department of Energy: "The disparity between increasing production and declining reserves can have only one outcome: a practical supply limit will be reached and future supply to meet conventional oil demand will not be available. The question is when peak production will occur and what will be its ramifications. Whether the peak occurs sooner or later is a matter of relative urgency..."

Actions could be taken to reduce the impact, but the longer those actions are delayed, the worse the impact will be.

Responsible and competent people who have studied the problem of Peak Oil, (including Robert Hirsch and his colleagues) agree that efforts will be needed to create alternative sources of energy, to reduce demand for oil through heightened energy efficiency, and to redesign entire systems (including both cities and the rural agricultural economy) to operate with less petroleum.

The Hirsch Report’s methodology involved the examination of three scenarios:Scenario I assumed that action is not initiated until peaking occurs.Scenario II assumed that action is initiated 10 years before peaking.Scenario III assumed action is initiated 20 years before peaking.

In all three scenarios, the Hirsch study assumed a “crash program” scale of effort (that is, all the resources of government and industry are marshalled to the tasks of creating supplies of alternative fuels and reducing demand through efficiency measures). The study found that, due to the time required to start efforts and the scale of mitigation required, Scenario I will result in at least 20 years of fuel shortfalls. With 10 years of preparation, a 10-year shortfall is likely. And with 20 years of advance mitigation effort, there is “the possibility” of averting fuel shortages altogether. The Report also concludes that “Early mitigation will almost certainly be less expensive than delayed mitigation.”

The administration, rather than taking steps to mitigate these looming catastrophic impacts, has instead done things that can only worsen them.

Before examining what Bush and Cheney have done (and not done), we should in fairness note that previous administrations are far from blameless. During the Clinton–Gore years, imports of oil increased while CAFE standards languished. However, in a court of law the incompetence or even criminality of others is seldom a viable defense for one’s own culpable actions.

First of all, the administration effectively buried the Hirsch Report. For many months it was available only on a high school web site, then on the Project Censored site; only toward the end of 2005 did it appear on a Department of Energy site. There has been no public mention whatever of the Report by any official in the Executive Branch. Thus the administration has sought not to respond to warnings of approaching crisis, but simply to muffle the warnings.

During the past six years, funding for renewable energy programs and for energy efficiency has not increased substantially. Meanwhile the administration has consistently sought to remove subsidies for the nation’s passenger rail system, Amtrak, while continuing to support immense subsidies for highways.

In his 2006 State of the Union address, Bush said that the U.S. is “addicted to oil,” and put forward the goal of reducing oil imports from the Middle East. The next day his staff backpedaled, saying that this goal was only an “example.”

Given all this, how will impeachment help? While it would be justified as a punishment for ineptitude or criminality, impeachment will not materially assist the nation to deal with Peak Oil unless current officials are replaced with ones who understand the problem and who are prepared to implement policies that radically shift America’s priorities in terms of energy, transportation, urban infrastructure, and agriculture.